ViTrox Corporation Berhad (“Vitrox”) (KLSE:VITROX) designs and manufactures innovative, leading-edge and cost-effective automated vision inspection equipment and system-on-chip embedded electronic devices. 

Vitrox was listed on the MESDAQ market in 2005 and successfully transferred to the Main Market of Bursa Malaysia on 9 November 2009. Since its listing, the stock has been a multi-bagger for its investors, its share price has grown over 1,200% in value.

In this article, we will take a closer look at the business, management and financial aspects of the Group, to assess whether it is worth an investment. 

Business Overview

Vitrox’s business comprises three core products:

  • Machine Vision System (MVS) – inspects for defects on integrated circuits in the semiconductor and electronic packaging industries.
  • Automated Board Inspection (ABI) – inspects for defects for several types of printed circuit boards for customers in the telecommunications and automotive industries, etc.
  • Electronics Communication System (ECS) – products for data communication and motion control to help integrate Vitrox machine vision systems with customers’ machines.

Providing “power of sight”, Vitrox’s automated inspection systems can be integrated into its clients’ industrial systems to check for semiconductor defects, and are widely used in the production of automotive, computing, healthcare, and telecommunications electronics, among others.

In 2019, Vitrox exported approximately 73% of goods and services, equivalent to RM249.3 million, to more than 40 countries around the world. In addition, the group’s customer base expanded from 413 to 504 customers. 

Vitrox’s strategy is to diversify its customer base globally and reduce the dependency on a single large customer. In 2019, its largest customer contributed 7% of the group’s revenue, whereas its top 10 customers contributed approximately 40% of the group’s revenue. Some of Vitrox’s key customers are strong Electronic Manufacturing Services (EMS) companies such as Flextronics, Jabil and Celestica. 

(Source: 2019 annual report)

Research & Development (R&D)

Vitrox is a technology company in which R&D is paramount to its growth. Over the last 10 years, the group has invested more than 12% of its revenue in R&D activities with the simple aim of launching at least two new or enhanced products by each business annually. In 2019, the group invested RM37.4 million, representing 11% of the revenue recorded for the year. In addition, the size of its engineering team increased by 65 people from 348 persons in 2018 to 413 persons in 2019. 

(Source: 2019 annual report)

Industry Outlook 

Vitrox expects the demand for vision inspection systems and equipment to be weak in the first half of 2020 due to short-term uncertainties presented by the coronavirus outbreak and on-going US-China trade tensions but anticipates the market condition to improve progressively in the second half of 2020 once the dust settles. 

On a mid-to-long-term time horizon perspective, the impetus for growth remains intact, driven mainly by adoption in new applications for 5G, automotive, Artificial Intelligence (AI) and Internet of Things (IoT).

(Source: 2019 annual report)

Major Shareholders

Vitrox was founded in 2001 by Mr. Chu Jenn Weng and Mr. Siaw Kok Tong, and is helmed by Mr. Chu himself, who is the group’s Managing Director. 

Mr. Chu has more than 20 years of experience in machine vision and related fields. In 2011, Mr. Chu was awarded the Ernst & Young Malaysian Technology Entrepreneur of the Year and Outstanding Entrepreneur Award 2011 from the Asia Pacific Entrepreneur Award.

On the other hand, Mr. Siaw plays a key role in establishing the group’s customer base in all countries where Vitrox has a presence today. 

Both men are backed by a team of key experienced management, which has a proven execution track record in the machine vision industry. 

(Source: 2019 annual report)

As of 31 March 2019, the three largest shareholders – Mr. Chu Jenn Weng, Mr. Siaw Kok Tong and Mr. Yeoh Shih Hoong – have a collective stake of over 56%. All three directors have gradually trimmed their shares over the years. 

NameDesignationPercentage of shareholdings
20142019
Chu Jenn WengManaging Director / President / CEO28.19%26.96%
Siaw Kok TongExecutive Director / Executive Vice President20.04%19.13%
Yeoh Shih HoongExecutive Director / Executive Vice President10.70%10.27%

Note: Includes direct and indirect interests

Financials  

Measure 1: Growth in revenue and profits

The Group has seen respectable compounded annual growth in revenue of 14.86% and profit after tax of 10.17% over the past 6 years. 

2019 was a challenging year for Vitrox. The trade war between the US & China caused massive uncertainties in semiconductor capital equipment demand due to the imposition of tariffs and import/ export restriction on equipment and components. 

Measure 2: Profitability

Vitrox’s net profit margins are relatively stable at 23.5% – 28.9% from 2014 – 2019 demonstrating that the group is focused at managing costs. Vitrox runs a lean business by employing a flexible manufacturing model and flat organization structure. This has enabled it to adapt quickly to changing market demands. 

Separately, its return on equity ratios are respectable at 16.5% – 28.1% within the same period, but the declining trend indicates that as the business grows, management may find it increasingly challenging to allocate and convert every dollar of investor capital into profit.

Measure 3: Liquidity

Vitrox does not have any liquidity issues as it has recorded strong current and cash ratios during the past 6 years. In fact, the Group has cash and cash equivalents of approximately RM191.60 million compared to total borrowings of approximately RM48.70 million as at 31 December 2019.

Round 4: Dividends payout

Vitrox has a policy of paying at least 20% of its profits as dividends. As the business grows, its dividend per share has risen from 2014 to 2019. 

Conclusion

With a closing share price of RM8.09 as at 22 May 2020, Vitrox is trading at a price to earnings (PE) ratio of 47.94, with a market capitalisation of RM3.81 billion. 

Investors need to be aware that at this valuation, a lot of growth expectations are baked into the share price. Therefore, investors need to weigh the growth potential of Vitrox and its high valuation carefully. 

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